Accounts about demand levels were mixed in Asia this week, with some suppliers mentioning healthy requirements, leading to a tightening of certain grades, and others describing consumption as lackluster, but in line with expectations for this time of the year.
A majority of consumers and producers typically strive to end the year with lower inventories in order to avoid paying taxes on material sitting in tanks or at the warehouse. As a result, suppliers offer attractive prices and other incentives to promote sales, while buyers tend to shop around and limit their purchases to smaller shipments than earlier in the year.
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This trend, together with the resumption of full production rates at most refineries since the first quarter–when fuel demand had picked up – has resulted in plentiful supply of most base stocks, and some have actually become so long that prices have tumbled.
Nowhere was this more evident than in the API Group III segment, where demand for the 4 centiStoke grade has been buoyant, while requirements for the 8 cSt cut have languished, resulting in abundant availability and lower price levels for this cut. Supply and demand for the 6 cSt grade were deemed more balanced and prices steadier.
Participants explained that the 4cSt cut has been in high demand for automotive applications, particularly since earlier in the year when some of the Group II grades were less readily available and prices had shot up. This was true not only in Asia, but in other regions such as North America as well. The robust buying interest affecting 4cSt supply has persisted over the last few weeks, leading to the current tight conditions and firm prices.
Suppliers said that they were shipping out as much 4 cSt as possible, but it was still not enough to meet all requirements, even though plants were running at close to maximum capacity.
A number of Group III suppliers have upped the volumes shipped within Asia, with South Korean producers shipping an increasing number of cargoes to Asian destinations since September, while there have also been numerous shipments moving to the United States from Asia and the Middle East to meet the vigorous demand there.
Within the Group I and II segments, requirements for the lighter grades have also been healthy, despite the approach of the year-end holidays, in response to pent-up demand for finished lubricants. Manufacturing disruptions and transportation issues caused by the pandemic a couple of months ago have resulted in demand for lubricants picking up later in the year than usual.
Transportation and logistics issues have encouraged suppliers to find buyers closer to home, instead of incurring the risk of long-distance shipments and mounting freight rates.
Southeast Asian Group I producers were heard to have little product available for spot transactions due to steady regional consumption, and healthy demand for the light grades in particular has led to rising price indications. Negotiations for December shipments were gathering speed, and prices were expected to react to the fresh requirements.
Bright stock prices, which had surged to record highs in the first half of the year, continued to be exposed to downward pressure given that buying interest was more muted and availability has loosened up.
With the lifting of lockdowns in many Asian countries, transportation and driving has increased, which has led to higher demand for lubricants and fuels. However, the rise in consumption of fuels such as diesel and accompanying higher prices had prompted a number of refiners to increase fuel production, consequently reducing base oil output. This had triggered concerns among buyers of possible shortages in the first couple of months of the new year.
As border restrictions that had been imposed due to the spread of COVID-19 were progressively being lifted in many countries, more air travel and an increase in jet fuel consumption were expected. As a result, refiners would be encouraged to operate refineries at higher rates.
An uptick in demand for light base oil grades has attracted a growing number of regional cargoes to China. Chinese refiners have increased production of diesel due to flourishing demand and climbing prices, precipitating reduced production of light-viscosity base oils. This situation fueled increased buying appetite for imports, with keen buying interest for South Korean and Taiwanese Group II base oils noted.
Additionally, Chinese importers had abstained from importing too much material in the previous two months on concerns that prices would soften, and were now finding that they needed to replenish stocks, particularly if the snug light-grade supply situation were to persist.
Indian buyers had also been actively pursuing light-vis grades, but demand has lost some of its luster after diesel prices fell a couple of weeks ago because of the government’s policies to lower the price of fuels and stimulate economic growth.
There were several cargoes expected to arrive in India from a variety of origins, including the U.S., Europe, China, South Korea and the Middle East over the next few weeks. However, future shipments were more difficult to conclude due to a lack of vessel space, climbing freight rates and unworkable price levels. Buyers felt comfortable that supply would be adequate for the next several weeks and therefore preferred to hold out for lower prices, instead of jumping at the first offer they received. However, there was also the general perception that prices may have reached the bottom and would bounce back if supply tightened.
Spot base oil prices were mixed once again as fundamentals moved in diverging directions, impacting grades in different ways. The spot ranges portrayed below have been revised to reflect bids and offers, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were fairly steady compared to previous weeks. The Group I solvent neutral 150 grade was holding at $870/t-$900/t, and the SN500 was also unchanged at $1,030/t-$1,080/t. Bright stock fell by $10/t to $1,280/t-$1,320/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were steady at $910/t-$950/t, while the 500N was also stable at $1,260/t-$1,300/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was up by $20/t at $770/t-$810/t, while the SN500 was steady at $890/t-$930/t. Bright stock was assessed down by $20/t at $1,130/t-1,170/t, FOB Asia.
Group II 150N moved up by $10/t to $800/t-$840/t FOB Asia, and the 500N and 600N cuts were down by $30/t at $1,040/t-$1,080/t, FOB Asia.
In the Group III segment, prices were higher for some grades, but lower for others. The 4 centiStoke edged up by $30/t to $1,440-$1,480/t and the 6 cSt was higher by $10/t at $1,430/t-$1,470/t. The 8 cSt grade fell by $40/t due to lengthening supply to $1,220-1,260/t, FOB Asia, all for fully approved product.
Upstream, crude oil futures fell to six-week lows on Thursday after reports from OPEC+ and the International Energy Agency pointed to the possibility of future oversupply, while an increase in COVID-19 cases in Europe fueled concerns about a drop in oil consumption. Prices were also weighed down by news that China would be releasing strategic reserves in an effort to lower oil prices.
On Nov. 18, Brent January futures were trading at $80.02 per barrel on the London-based ICE Futures Europe exchange, from $82.66/bbl on Nov. 11.
Dubai front month crude oil (Platts) financial futures for December settled at $77.37/bbl on the CME on Nov. 17, from $79.10/bbl on Nov. 10 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.
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